A Post-Keynesian response to Piketty's 'fundamental contradiction of capitalism'

Felix Lopez Martinez and Engelbert Stockhammer
Authors registered in the RePEc Author Service: Javier López Bernardo ()

No PKWP1411, Working Papers from Post Keynesian Economics Society (PKES)

Abstract: In Capital in the Twenty-First Century, the French economist Thomas Piketty develops a new and rich set of data that deals with income and wealth distribution, output-wealth dynamics and rates of return, and has proposed as well some “laws of capitalism”. At the core of his theoretical argument lies the “fundamental inequality of capitalism”, an empirical regularity that states that the rate of return on wealth is higher than the growth rate of the economy. This simple construct allows him to conclude that increasing wealth (and income) inequality is an inevitable outcome of capitalism. While we share some of his conclusions, we will highlight some shortcomings of his approach based on a Cambridge post-Keynesian growth-and-distribution model. We argue, first, that r > g (i.e. that the rate of return on wealth is greater than the growth rate of the economy) is not necessarily associated with increasing inequality in functional distribution; second, Piketty commits a fallacy-of-composition argument when he says that the necessary condition for r > g is that capitalists have to save a large share of their capital income; third, post-Keynesian economists can learn from Piketty’s insights about personal income distribution and incorporate them into their models; and, fourth, we reiterate the post-Keynesian argument that a well-behaved aggregate production function does not exist and it therefore cannot explain the distribution of income.

Keywords: Rate of return; income distribution; post-Keynesian growth and distribution models; Cambridge equation; Pasinetti's theorem (search for similar items in EconPapers)
JEL-codes: B22 B50 E12 O40 (search for similar items in EconPapers)
Pages: 30
Date: 2014-10
New Economics Papers: this item is included in nep-gro, nep-his, nep-hme, nep-mac and nep-pke
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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https://postkeynesian.net/media/working-papers/PKWP1411_93JOuHP.pdf First version, 2014 (application/pdf)

Related works:
Journal Article: A Post-Keynesian Response to Piketty's ‘Fundamental Contradiction of Capitalism’ (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:pke:wpaper:pkwp1411

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